KBRA Assigns AA+ Rating with Stable Outlook to North Slope Borough, Alaska General Obligation Bonds, Series 2023A (General Purpose) and 2023B (Schools); Affirms Parity Debt
27 Sep 2023 | New York
KBRA assigns a long-term rating of AA+ with a Stable Outlook to the North Slope Borough, Alaska (the "Borough") General Obligation Bonds, Series 2023A (General Purpose) and General Obligation Bonds, Series 2023B (Schools). KBRA additionally affirms the long-term rating of AA+ with a Stable Outlook for the Borough’s outstanding general obligation bonds.
The long-term G.O. rating remains anchored by a unique mix of attributes: a massive albeit highly concentrated tax base that is projected by the Borough to remain strong over the life of the debt, and a modest but rapidly amortizing debt burden. KBRA also views the Borough’s financial position as strong, bolstered by its favorable operating performance, strict budgetary controls, maintenance of exceptional liquidity, and demonstrated commitment to growing the substantial Permanent Fund. Offsetting the Borough’s reliance on a narrow resource base are its conservative financial management practices and sizable reserves and liquidity, including the aforementioned Permanent Fund, which maintained a balance of $1.012 billion as of June 30, 2023.
The Series 2023A (General Purpose) and Series 2023B (Schools) Bonds will be issued to finance the Borough’s FY 2024 capital program. The Bonds are secured by an unlimited ad valorem pledge on all taxable property within the Borough, on parity with approximately $241.24 million of G.O. debt currently outstanding.
Key Credit Considerations
The rating actions reflect the following key credit considerations:
Credit Positives
- History of conservative budgetary management, coupled with established financial management policies and procedures for budgeting, forecasting, and monitoring of financial operations and performance.
- Low debt level when measured relative to the tax base.
- Rapid debt amortization structure, with nearly 80% of principal repaid within five years.
Credit Challenges
- Tax base that is highly concentrated in the petroleum extraction industry, which has experienced declining production for most of the last three decades.
Rating Sensitivities
For Upgrade
- Substantial increase in the Permanent Fund balance.
For Downgrade
- Significant increase in direct or contingent liabilities.
- Shift in debt amortization structure, thus exposing bondholders to uncertainty regarding the long-term trajectory of oil-related assessments.
- Unanticipated substantial decline in the tax base, realized attributable to assessment litigation or a material decline erosion in values, thus limiting revenue raising flexibility.
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